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ULIPs and traditional insurance plans are two different ways of investing in life insurance. Under ULIP plans, you get the advantage of insurance and market-linked returns. On the other hand, traditional insurance plans provide pure life coverage with assured returns.
As an informed investor, you must diversify your funds across varied options to maximise your gains and minimise the risk of your investment. Of the various investment options available, investing a part of your corpus into insurance products is essential.
These days, you can choose an investment product based on your investment goals and expected returns. For this, you can go beyond the traditional insurance products and invest in ULIP# insurance. Before selecting an insurance product for your portfolio, it is best to know the difference between ULIP and traditional plans to identify the one best suited for your needs.
To help you make an informed investment decision, here is a detailed guide on the difference between ULIP and traditional insurance plans.
ULIP and Traditional Insurance Plans Explained
What is a ULIP?
A ULIP or Unit Linked Insurance Plan is a unique insurance product that offers the dual advantage of insurance and investment to the investor. You can enjoy two options in a single premium under this single integrated plan. Under the ULIP plan, the insurance company channelises a part of your policy premium into a variety of funds like equity, debt, hybrid, money market, etc.
What is a Traditional Insurance Plan?
A traditional insurance plan is a pure insurance scheme that offers fixed-income returns and life cover to the investor. These are traditional plans that invest your funds in low-risk return options and provide an assured lump sum amount and specific bonus# when the policy completes its term.
Difference Between ULIP and Traditional Insurance Plan
Parameter |
ULIP Insurance |
Traditional Insurance |
Type |
Insurance cover along with the benefits of investment. |
Pure insurance cover |
Objective of Investment |
Long-term investment to generate profits from the market along with insurance coverage |
Fixed returns in the long term. |
Nature of Return |
Variable returns based on the funds your money is invested in. Market-linked$ returns. |
Guaranteed* returns as the investment in risk instruments is low to negligible. |
Control on investment |
The investor chooses the nature of the investment and decides the risk of the investment. They can switch from one investment type to another (For eg. debt to equity) per your investment needs. |
Investors cannot switch between funds or alter the level of risk on their investment. |
Utilisation of the Investor’s Funds |
The policy premium is distributed to meet the expenses, for insurance coverage, and to invest in market-linked instruments. |
The policy premium is distributed to meet the expenses, for insurance coverage, and to invest in low-risk instruments. |
Flexibility on Investment |
The investor has the flexibility to choose the part of the premium to be used for insurance coverage and for investment. |
No such flexibility available. |
Tax* Benefit |
Available under Section 80C of the Income Tax Act. |
Available under Section 80C of the Income Tax Act. |
Lock-in Period |
A minimum of 3 to 5 years. |
Until maturity of the policy. |
Security of Investment |
Not secure |
Highly secure |
SIP Investment Mode |
Available |
Not available |
Transparency |
You can track your portfolio and check the number and value of funds you hold. |
You cannot track your portfolio. |
Partial Withdrawals |
Possible subject to the minimum fund value and other conditions. |
Not possible under most traditional policies. However, you can take a loan against the policy. |
Charges |
Specific charges represented under different heads. |
The charges are not specified. |
Single Premium Top-Up Facility |
Available |
Not Available |
Who Should Invest in ULIP Insurance?
You should invest in ULIP insurance under the following conditions:
ULIP is a good investment choice for you if your primary goal of investment is to generate wealth along with getting a life cover.
If you seek liquidity in your investment, you can consider investing in ULIP. Most ULIP plans allow partial withdrawal of funds after the mandatory lock-in period is over.
The new generation ULIPs have been designed to be less expensive for the investor and hold a higher potential for providing better returns.
If you like to take hold of your investment and want the flexibility to switch between funds according to their performance, you can invest in ULIPs.
Who Should Invest in Traditional Insurance?
You should invest in traditional insurance under the following conditions:
If you do not want to take a high risk on your investment and want to protect it from market volatility, you can invest in traditional insurance.
If you seek a regular income from your investment, invest in a conventional insurance product. You may invest in a money-back or cashback endowment plan to get a regular income as maturity/death/survival benefit.
Traditional insurance is good for you if you seek bonuses or guaranteed additions to the plan benefits. However, these bonuses and benefits may vary for various insurers.
Wrapping Up
You can choose between various insurance products to add to your investment portfolio. If you want your policy to give you the dual benefit of investment and insurance, you can opt for a ULIP plan. On the other hand, if you seek pure life cover, you can invest in a traditional insurance plan.
With Tata AIA Life Insurance, you can choose between a variety of life insurance products, such as term insurance, ULIP plans, health plans, retirement plans, and more.
